The Property Portfolio: how property builds wealth
Category Blog
Building wealth through property is probably one of the most lucrative ways of ensuring a comfortable financial future for yourself. Not only do you stand to make a good stream of passive income through rental, but the value of the property generally increases substantially over time. But as in all areas of investment, you need to know a fair amount about the market, the economy, costs, values, and how the estate industry works. And a bit about yourself would come in handy.
Hone your focus
Identifying the types of properties and market you want to target is vital. Are you interested only in rental or are you able to renovate and resell? Are you just moving from property to property and looking to make a profit each time you sell? Are you choosing residential or commercial property? Single dwellings or new developments in multi-family estates? There are a considerable amount of choices out there, and also a range of responsibilities. Select what suits you best.
Don't buy if you are not comfortable with the process. Some people are loath to move from home to home just to make money, and many forget the costs accompanying renting such as rates, electricity, water, insurance, maintenance and repair. Not to mention awkward tenants. Understanding where to buy, when to buy, and what to charge, is crucial to your success.
Do the research
Before you buy, you need to undertake a fair amount of research. The amount of money you may be able to make is based on the current health of the housing market, as well as the job market and emerging industries, among other things. You need a business plan that fits the market, the area, the timing and your capabilities. What are the demographics of the area you are contemplating? Are you wanting to rent to students, seniors, professionals, families? Are you close to schools, shops, transport, etc? Are you up to date with tenant laws and occupancy rates and rental growth in that market? In the beginning this work may seem onerous, but it must be done - and with time the process can become really exciting. Of course, you can also outsource all this fact-finding to professionals who will probably have much of this information at their fingertips.
You don't need a fortune to begin
Your most vital tool will be the ability to identify the right niches in the market. What is a bargain, what has potential? What will the development costs will be, and will they be worth it? Starting small is key, but beware of location, trends, and enthusiastically outpricing the real value of the property. Always focus on affordability - both on the price you pay, and the price at which you would like to resell or re-evaluate.
Points to keep in mind
- In general, property investments take time to produce decent returns
- You'll need to ensure sufficient reserves to carry you through during market downturns, as you don't want to end up with a 'forced' sale
- Currently, interest rates are in your favour, making it easier to leverage investment through mortgage finance.
Technology
Here's a great advantage for building a property portfolio. You can literally view hundreds of properties in a single evening. Likewise, when you want to sell, you have access to a sales channel that markets your asset and can provide a fast turnaround. Innovative digital tools give you instant access to valuable information about a property at a click of a button. This is invaluable help when you are building your assets in this sphere. You can search for new acquisitions, get free value estimates and a database of home service providers - along with area and property reports for a comprehensive view of a suburb or particular house.
An active or passive role?
Real estate investment is a canny way to build reliable tax-advantaged passive income whether you place your portfolio in capable hands to manage on your behalf, or whether you become your own property manager. Passive investors want the benefits of real estate investing without the bother of management. If this is your choice then you need to vet the agency into whose hands you give your business; check their track record and their knowledge of the areas and market you are interested in. If you choose your own active path, then be sure you have enough time to manage your property efficiently; you will need a business plan that propels rent growth and appreciation. High focus on your assets and a good relationship with tenants are keys to success.
Strategies
Fix and flip: This is often a popular choice, and involves buying a run-down property in a good area, investing in affordable renovations, and then selling at a substantially higher price. This strategy is focused on adding value through calculated investment in the upgrading process.
Buy-to-let: This usually presents good investment. It delivers an ongoing, passive, inflation-linked income as well as continued capital growth. It is a matter of researching a good location with good prospects of future growth. You can find a reputable rental company to manage the property, ensure that the rental covers all monthly expenses, take out rental insurance, and build up a reserve fund to cover any contingencies. Thereafter, the ongoing rent serves as a useful passive income.
Buy-to-hold: This involves the long-term view of buying a property and waiting for the value to increase over time. Usually, you are looking at 10 to 20 years. As the price of the property increases, you can access the value, less the bond balance if there is such, through selling the property. This applies equally to all types of property, from a primary residence to vacant development land.
Buy-to-sell: When property prices are climbing fast, some people will buy for short-term gain. They buy and keep the property for only 2 or 3 years, then sell in an inflationary market. It's a risky strategy because there are a number of factors that can change the market over-night, and you could end up sitting with a property that you either cannot sell, or which has actually devalued.
Professional help
Whether beginning small or building your portfolio slowly, there is a point at which you should invest in a team of professionals from an established estate agency. Not only is their advice and legal expertise vital, they can also act as your rental agents. They are the qualified professionals who will be able to highlight advantages and disadvantages of any property or area you may be contemplating. Once you start to seriously build a property portfolio, you will encounter experts such as tax practitioners, bankers, attorneys, builders, renovation contractors, amongst others. And everyone will add to your own growing expertise in the sector. Be ready to soak up knowledge like a sponge.
Leapfrog Property Group
Leapfrog Property Group offers a fresh and innovative approach to buying, selling, renting and property investments, ensuring the best property deals for clients across South Africa. Our agents are qualified, trained, experienced; our approach bold and spirited, driven by heart, generosity and honesty. It is our mission to advise, eliminate obstacles and save you unnecessary expense. Trust is our watchword. And value our motto. Armed with our combined credentials, we are the bright face of excellence in the South African market.
Author: Leapfrog Property Group
